SCOR continues franchise expansion, rate increases accelerate in Q2

SCOR is the first of the global reinsurance majors to report its results for the second-quarter and first-half of 2019 and CEO Dennis Kessler highlights the ongoing expansion of the SCOR franchise, while the data suggests rate increases accelerated for the firm in Q2.

SCOR has continued to expand on its premiums underwritten across the business and this morning reported a strong set of results as the benefits of higher pricing and an enlarged underwriting portfolio flow through.

The company underwrote gross premiums of EUR 8.01 billion in the first half of 2019, which is an increase of 6.3% at current exchange rates (2.6% at constant exchange rates).

The SCOR P&C reinsurance business recorded gross written premium growth of 13.9% at current exchange rates (10.4% at constant exchanges rates), while the Life reinsurance business achieved an increase in gross written premiums of 1.2% at current exchange rates (which is actually down 2.6% at constant exchanges rates, although SCOR notes that this is due to the renewal of certain deals as fee business).

The SCOR Global P&C business saw strong growth and technical profits, the reinsurance firm said, as the better renewal conditions in 2019 and continued effect of strong 2018 renewals, particularly in the U.S, flowed through.

The SCOR Global P&C business managed a combined ratio of 93.7%, which is up on the prior years 91.4%, but still ahead of the reinsurers strategic target of ~95-96%.

The SCOR Global Life business also exhibited good technical profitability as well as business growth in North American and Asian markets, the company said, with a technical margin of 7.2% that is up on the prior half-years 6.9%.

In total SCOR managed group net income of EUR 286 million for the first-half of the year, up by 9.2% on H1 of 2018.

SCOR’s first-half 2019 return on equity (ROE) is reported as 9.8%, which again exceeds the profit target and is one percent up on H1 2018’s 8.8% RoE.

Commenting on the first-half 2019 results, Denis Kessler, Chairman & Chief Executive Officer of SCOR, said, “SCOR delivers a strong performance in the first six months of 2019, achieving the solvency target and outperforming the profitability target set out in “Vision in Action”.

“The Group continues to expand its franchise, recording controlled growth in target geographical areas and lines of business, while delivering excellent technical profitability in both P&C and Life reinsurance. We are actively preparing our new strategic plan, which will be presented at the beginning of September. This plan – SCOR’s seventh since 2002 – will be an opportunity for the Group to affirm its ambitions, set its objectives and detail the ways and means used to pursue its strong value-creating strategy over the coming years.”

The franchise expansion has continued steadily with SCOR displaying a growing appetite for business in the United States in recent years, which at the renewals so far this year will have benefited the company in creating a reinsurance book with higher return potential.

SCOR was not hit hard by loss creep in Q2 of 2019, having booked a lot of the negative development in the first-quarter of the year for events like typhoon Jebi.

As a result, SCOR only reported 4.1% of combined ratio mainly coming from catastrophe losses due to U.S. tornadoes, floods in Brazil and European storms in the first-half of 2019. While in Q2 the reinsurance firms typhoon Trami and Kuwait flood loss reserves deteriorated slightly, adding a small amount to the combined ratio, but Jebi did not deteriorate as SCOR must have reserved prudently for it in Q1.

SCOR’s franchise expansion continued at the June and July renewals, as its year-to-date renewed premiums are now up by 10.2% over the prior year.

At the same time SCOR’s renewals at the mid-year imply that rate increases have accelerated for it, as it reports that June and July renewal pricing was up 3.8%, while year-to-date is up 1.7%.

However the company remained selective, despite the attractive pricing available at the mid-year reinsurance renewals.

“Amid improving market conditions, SCOR Global P&C maintained its disciplined underwriting approach, growing with existing clients across all geographies. In the U.S., the book remained stable, namely in Cat markets, where we continue to limit our exposure to Florida specialists,” the company explained.

For SCOR this all suggests a portfolio constructed in the first-half of the year that is larger, potentially more globally diverse given the continued expansion into the U.S., and with higher pricing potentially more profitable as well, as long as major losses remain within budget.

The acceleration of rate increases is positive and this has likely flowed through to SCOR’s own retrocession costs as well so far this year.

However, the reinsurer found value in the catastrophe bond market this year, as its latest cat bond priced at only slightly above the mid-point of initial guidance.